Answer:
B) investor's current required rate of return is below the coupon rate of the bond.
Explanation:
A bond that is sold at a price above its face value is said to be sold at a premium. A bond sells at a premium when its coupon rate is above the market's required rate of return.
When a bond is sold at a premium, it yields an interest rate which is lower than its coupon rate. For example, a bond's face value is $100 and its coupon rate is 8%. If the bond sells at a premium for $110, it will still pay the same coupon, but it will yield a 7.3% interest rate.
